Subrogation in Third-Party Claims

A gavel rests on a block sitting atop an incident report.

When a third-party causes an employee’s injury and that injury arises out of the course and scope of the employment with the employer, then the employee may have a worker’s compensation claim as well as a civil claim arising out of the same incident that caused the employee’s injury.
Under the Minnesota Worker’s Compensation Act, specifically Minnesota Statute § 176.061, the employer’s work comp insurance carrier may recover benefits paid on behalf of the injured employer, if the employee was injured by a negligent third-party. The work comp insurance carrier’s subrogation interest is based on the theory is that the negligent third-party bears the ultimate responsibility for the employee’s injury.

Typically, third-party claims arise out of workers’ compensation claims that involve car accidents, construction accidents, or injuries or accidents that occur on the premise of a party other than the employer. Police and firefighters are not barred from bringing third-party claims against negligent third-parties if they become injured while on duty.

These claims are complex and if the parties fail to properly address the intervention issues, then they may not recover the full amount owed.

Party 1: The Injured Employee

The injured employee can recover from the employer and the defendant:
(1) workers’ compensation benefits
(2) civil damages

Civil damages go above and beyond workers’ compensation benefits and include pain and suffering as well as other monetary damages for which the Workers’ Compensation Act does not account.

Party 2: The Employer

The employer who paid workers’ compensation benefits to or on behalf of the injured employer may sue the negligent third-party for reimbursement for benefits paid.

Party 3: The Negligent Tortfeasor (the defendant in a civil action)

If the employer played a role in the employee’s injury, the negligent third-party in a civil action may sue the employer for the employer’s share of fault in the employee’s injury.

This right of contribution by a tortfeasor from a liable employer is known as Lambertson liability. This action arose out of Lambertson v. Cincinnati Corp., 257 N.W.2d 679 (Minn. 1977) and was later codified by the legislature in Minnesota Statute §176.061.

Lambertson liability is calculated as the lesser of:
(1) the employer’s percentage of fault multiplied by the employee’s damages; or
(2) the equivalent of the employer/insured’s total subrogation interest

Future Workers’ Compensation Benefits

When settling a third-party claim the parties must clearly delineate what will happen to future workers’ compensation benefits. While an employee may settle a civil claim, workers’ compensation is an ongoing benefit system, not a one-time litigation event. Therefore, if the issue is not clearly dealt with by a knowledgeable attorney, the work comp carrier could have a future credit against an employee’s ongoing workers’ compensation benefits.

Statutory Allocation of Civil Damages between Employee and Employer

Civil damages are allocated to the employee and the employer by the statutory formula in Minnesota Statute §176.061.

Types of Settlements

A. General Release

An employee may choose to settle with a negligent third party using a general release, which addresses both the employer and the employee’s interest.

The statutory formula must be used to address the employer’s interest and the employer must agree with the settlement amount. If the employer does not agree with the proposed settlement of the third-party claim, then the employer does not have to be forced to accept an amount, despite the fact that the proceeds would be distributed according to the statutory formula. See Jackson v. Zurich American Ins. Co., 542 N.W.2d 621 (Minn. 1996).

B. Naig Settlement

An employee can make a separate settlement for damages not compensated under the Minnesota Workers’ Compensation Act, such as loss of consortium, pain and suffering, loss of future earning capacity, emotional distress, and other types of wage loss benefits. This type of settlement is called a Naig settlement, named after the case Naig v. Bloomington Sanitation which established this right. 258 N.W.2d 891 (Minn. 1977). This settlement would not be subject to the distribution formula of Minnesota Statute 176.061, subdivision 6 and this settlement would not affect an employee’s future worker’s compensation benefits.

C. Henning Apportionment

If an employee does not choose to have the recovery proceeds distributed in accordance with the statutory formula then an employee may obtain an appointment of damages from the court. The court would distinguish between the damages and determine the damages compensable by work comp.

Third-party claims are complex and complicated. If you believe you may have a civil claim as well as a workers’ compensation claim you should consult with an attorney who has experience in both Minnesota work comp and personal injury. If you choose an attorney with experience in only one area you may compromise your ability to fully maximize your ability to recover. At Meuser Law Office, P.A. we frequently represent plaintiffs with both workers’ compensation and civil claims. Contact us today for a free consultation.